S&P 500 extends best month since 2011 as Treasuries reverse drop

The Standard & Poor’s 500 Index extended its best monthly rally since 2011 while Treasuries reversed losses and the dollar erased gains as the Federal Reserve refrained from indicating when it will reduce the pace of stimulus.

The S&P 500 increased 0.6% to 1,696.3 at 2:41 p.m. in New York to extend its July rally to 5.6% and reclaim a record high on a closing basis. Treasury 10-year note yields were little changed at 2.61% after earlier jumping as much as nine points. Gold futures slipped 0.2%, trimming the biggest monthly gain since January 2012, while oil rallied 2%. The MSCI Emerging Markets Index headed for the longest losing streak since April. The Bloomberg Dollar Index lost 0.2% after jumping as much as 0.5% in morning trading.

Fed Chairman Ben S. Bernanke and his colleagues are debating when employment gains will be sufficient to warrant tapering bond purchases that swelled the Fed’s balance sheet to a record $3.57 trillion. The Fed said that while economic growth should pick up from its recent pace, persistently low inflation could hamper the recovery. Government data today showed gross domestic product grew at a 1.7% annualized rate, more than the 1% advance predicted in a survey of economists. The European Central Bank and Bank of England meet tomorrow.

‘No Surprise’

“The statement should come as no surprise, the Fed will remain largely data dependent as to asset purchases, while noting persistently low inflation may be a risk to the economy,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview. His firm oversees $290 billion. “The mention of low inflation being a risk may push out expectations for tapering, but by and large, this statement reads as expected.”

The Fed said its bond purchases will remain divided between $45 billion a month of Treasury securities and $40 billion a month of mortgage-backed securities. The Fed also will continue reinvesting securities as they mature.

“The committee recognizes that inflation persistently below its 2% objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington.